Czechs trump Albania to push through CEZ settlement

By bne IntelliNews June 25, 2014

Tim Gosling in Prague -


Czech utility CEZ looks to have scraped out of one of its foreign misadventures with the help of the government and a trump card, as it announced it has reached a settlement with Albania over its local distribution unit. The deal, pushed through by Prague by threatening to delay Tirana's EU aspirations, will see the company handed €95.5m, around the same volume as its initial investment.

The deal looks to put to bed a long and bitter fight between CEZ and Tirana, which ended up featuring barbed comments and threats on a state level from Albania and the Czech Republic, which owns close to 70% in the power company. It also avoids the need for arbitration, which looked to be bogging down the ambitions of both parties. 

"The settlement agreement resolves all claims between the CEZ Group on the one hand and the Republic of Albania on the other hand relating to CEZ's investment in CEZ Shperndarje and the Albanian energy sector," CEZ and Albania said in a joint statement. Brokered by the Energy Community Secretariat in Vienna, "[b]oth parties pledge that the agreement contains no acknowledgement of any wrongdoing by any party."

That ends a saga that kicked off with CEZ's 2009 purchase of 76% in a major Albanian power distributor for €102m. However, the air around what became CEZ Shperndarje was poisonous practically from the start. The Czech company complained of unpaid bills by state companies, power theft and unrealistic regulation of prices. Tirana was incensed by CEZ's failure to stick to investment commitments.

The arguments came to a head in January 2013, when Tirana stripped CEZ Shperndarje of its licence and put it under administration. The pair has been tussling ever since, with CEZ taking Tirana to international arbitration. 


However, the likely spark for the deal is that the EU finally gave Albania the OK to push its accession bid forward earlier this year, after three previous failures. This was Prague's trump card, with a final decision by the EU set for a summit on June 26/27.

Earlier this month, high-ranking EU sources told Czech news agency CTK that the Czechs had complained that the talks in Vienna were yielding little and that they were now threatening to block Albania's progress unless it struck a deal allowing the power company to retreat without too much damage. Czech Prime Minister Bohuslav Sobotka said on June 9 that although Prague generally supports EU enlargement in the Balkans, “the Czech Republic will be definitely interested in the protection of foreign investments in Albania, stability of its business environment and the fight against organized crime."

The EU granted Albania official candidate status the same day the CEZ deal was announced.

At the same time, the reformist government of Prime Minister Edi Rama - which took office in September - is keen to put the situation to bed to allow it to move forwards on updating its dilapidated power system. According to Reuters, it has been pressing to plough $200m into the electricity sector, with the World Bank and other donors ready to back that with additional funding once the dispute with CEZ was sorted.

Moving on

For its part, CEZ is also keen to put the past behind it. The Albanian investment was part of an ambitious strategy in the previous decade to build itself into a regional giant that has spectacularly backfired. It is also fighting against the seizure of its Bulgarian distribution licence, and is facing difficulties over a giant wind farm project in Romania.

However, since it dropped a €10bn or so plan earlier this year to expand its Czech nuclear plant Temelin, it has suggested it wants to have another pop at expanding its horizons. With that in mind, analysts say that although the Czech company will lose cash on the deal, its a better turnout than dragging through the courts for years.

Under the agreement, "after fulfillment of conditions precedent," CEZ says it will receive €95.5m as payment for receivables and the transfer of shares in CEZ Shperndarje, in addition to €4.5m  already received. The payments will come in annual installments to 2018. According to a statement from the Czech power company, the amount it will receive is "similar to initial investment into [the] purchase of [the] Albanian distribution company." 

"I consider the negotiated agreement as success because we will receive funds significantly earlier and we will not need to wait several years for results of the arbitration proceedings," says CEO Daniel Benes. "The agreement is designed so that the financial compensation will be guaranteed by [a] renowned European bank," he added.

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